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Below is the information provided from the IRS regarding non-business bad debt. I would agree with you that the amount should be reflected on schedule D.
Report a nonbusiness bad debt as a short-term capital loss on Form 8949 (PDF), Sales and Other Dispositions of Capital Assets, Part 1, line 1. Enter the name of the debtor and "bad debt statement attached" in column (a). Enter your basis in the bad debt in column (e) and enter zero in column (d). Use a separate line for each bad debt. It is subject to the short-term capital loss limitations. A nonbusiness bad debt deduction requires a separate detailed statement attached to your return.
What kind of entity was it?
I was not suggesting that you were trying to get over. If there were stock ownership, would it have been reported on the schedule C (for instance would the amount be greater than 20% of the corporation?
So the wife lent the husband money?
They both live in California?
Does the corporation meet the qualification for a section 1244 small business?
Did the C-Corporation show a balance sheet on the tax return?
Does it meet the other requirements for 1244 treatment?